Wall Street analysts weigh in on Apple's Macworld announcements

Wall Street's usual suspects have started to weigh in on Apple's Macworld announcements, with most speaking favorably of what company chief executive Steve Jobs laid out on Tuesday. However, at least one analyst was skeptical about the potential for the new MacBook Air.

Shaw Wu, an analyst with American Technology Research said iTunes Movie Rentals may end up being a bigger deal than some expected.

"On the surface, the announcements look underwhelming and somewhat expected; however, we think when looking back several years from now that the iTunes Movie Rentals announcement will likely end up being a landmark event and potential game-changer," he wrote. "We think movies will ultimately help in driving more users to the Apple platform (iTunes, iPod, iPhone, Mac, Apple TV). In fact, this announcement reminds us of the launch of the iTunes Music Store back in late April 2003 which helped ignite a multi-year 'digital music cycle'. We believe we may be at the beginning of a 'digital video cycle' where there is a fundamental paradigm shift to online video from physical DVDs. In our view, Apple is well-positioned to become a key destination for movies much like it is for music, music videos, and TV shows.

The analyst, however, was a bit cautious in predicting that the MacBook Air would also be a smash hit, saying it may share a bit too much in common with Apple's other notebook offerings, yet provide only limited differentiation in terms of compelling new features.

"While we are impressed with the new MacBook Air and its industrial design, it is not as clear if it will drive incremental buying as has Asus' Eee sub-notebook," he told clients. "To us, there may be too much overlap with its existing MacBook and MacBook Pro. But then again, Apple has proven fairly adept with product placement, most recently with iPhone and iPod touch where there has been minimal cannibalization despite overlapping functionality."

The AmTech analyst added that while Apple shares have been pressured with the technology sector due to macroeconomic concerns, he believes the company is well-positioned to weather the storm better than most with its strong fundamentals.

"We see upside to [our] $210 [price target] in 6-12 months," he wrote.

Over at Piper Jaffray, analyst Gene Munster was bit more bullish on the MacBook Air, saying he believes the super-slim notebook should fuel market share games for the Cupertino-based Apple, helping the company garner an additional 20-30 basis points of global PC market share in 2008.

Apple should also see incremental hardware sales due to the recent addition of iTunes Movie Rental content, according to Munster.

"The consumer's desire to enjoy content whenever and wherever is a clear trend in digital media," he wrote. "We believe that the ability to rent movies on iTunes for $2.99-$3.99 will drive significant interest in Apple's entertainment ecosystem. This ecosystem now includes the Apple TV, iPod and iPhone. Because of the integration of these devices, consumers can be certain that by purchasing Apple devices they can view their content whenever and wherever. Moreover, as people invest in digital media libraries, Apple customers can be assured that their devices will work with newly released content in the future."

Munster maintained his Buy rating and $250 price target on shares of the company.

Ingrid Ebeling, an analyst with JMP securities, shared a similar view on Apple's Macworld announcements, explaining to clients in a research note that she believes Apple continues to stay ahead of the curve and deliver what consumers want.

"We believe Apples ability to seamlessly integrate digital media from the Internet onto consumer devices, including HDTVs, will continue to drive market share growth of its Mac business," she wrote.

The analyst reiterated her our Market Outperform rating and $210 price target on shares of the company.

It appears that I am in the minority but I don't see the benefit of paying $3-4 to rent a movie that has to be watched within 24 hours especially if I want to view it more than once, I may as well pay the $10 and buy it.

Also not being able to put it on both the Apple TV and iPod make buying the better deal.

If the rentals were $1-2 and the viewing time were much greater than 24 hours (at least a week) they would have a greater appeal to me.

I hope that Fox and other studios that are providing rental-only films will eventually allow us to purchase them as well.

It appears that I am in the minority but I don't see the benefit of paying $3-4 to rent a movie that has to be watched within 24 hours especially if I want to view it more than once, I may as well pay the $10 and buy it.

Also not being able to put it on both the Apple TV and iPod make buying the better deal.

If the rentals were $1-2 and the viewing time were much greater than 24 hours (at least a week) they would have a greater appeal to me.

I hope that Fox and other studios that are providing rental-only films will eventually allow us to purchase them as well.

-eric

you have 30 days to watch the movie...once played, you have 24 hours to complete viewing. Hardly a limiting model given how most people rent movies. I suppose it's not as free as the netflix model (keep it until you return it)...but this is very similar.

also, what do you mean "not being able to put it on both the Apple TV and iPod"? The movie rental concept demoed (maybe I'm wrong here) via Take 2. And, I think I remember Jobs saying that you _can_ transfer the video to any current generation iPod/iPhone.

edit: By the way, where in the world can anyone rent a movie for $1-$2?

I want to view it more than once, I may as well pay the $10 and buy it.

Most people watch a film ONCE, so buying them is not preferable. It's why rental stores did so well in the 80s and 90s.

Quote:

Originally Posted by user23

you have 30 days to watch the movie...once played, you have 24 hours to complete viewing. Hardly a limiting model given how most people rent movies. I suppose it's not as free as the netflix model (keep it until you return it)...but this is very similar.

But in some ways it's more free as you don't have to wait days between ordering movies and them arriving and can take as many with you on a trip.

Quote:

also, what do you mean "not being able to put it on both the Apple TV and iPod"? The movie rental concept demoed (maybe I'm wrong here) via Take 2. And, I think I remember Jobs saying that you _can_ transfer the video to any current generation iPod/iPhone.

You are not wrong. The only way you can't move a rented video from the AppleTV is if it's HD. You also can't rent an HD movie from within iTunes. I suspect the reason for this is too keep these customers from trying to get out ncnompatible files on there iDevices and then bitching when they realize that the kbps are too large for the small processors to handle.

In my area many grocery stores have had rentals for $1-2 each for nearly a decade. My point is why must we accept that a movie rental should cost $3-4 from an online store? They do not have the same overhead costs of a retail establishment, no inventory to worry about and distribution costs are much lower so pass on the savings to the consumer.

And for the same reasons why must my viewing period be limited to 24 hours? What if I want to take my time and watch it over a couple of days? A 24 limit made sense for physical media because they want to maximize their rentals and they are limited by the physical media, but with a digital download they can rent unlimited copies concurrently.

The prices and rental periods are old retail mindset models that, just like the album, need to be broken up.

It appears that I am in the minority but I don't see the benefit of paying $3-4 to rent a movie that has to be watched within 24 hours especially if I want to view it more than once, I may as well pay the $10 and buy it.

Actually, you have up to 30 days to watch it.

Compare that with paying $5.99 (plus the cost of gas) to rent it at Blockbuster and having to return it within either 2 or 7 days, depending on the movie.

The analysts should have made a more realistic target around 115 or so for at least the next 6 months. Depending on how bad the recession/depression will be, the target should be adjusted even more.

Fortunately, the real world isn't that pessimistic. That would require Apple stock to drop by more than a third - after a 5 or 6% drop yesterday. It would take far worse economic conditions than we're likely to see for the market to drop that much.

The next analyst who says 'paradigm shift' ought to be taken out the back and shot.

That aside, there are what 7+ million Netflix subscribers. How many people use iTunes to manage their music and video? Who is the biggest download vendor of videos? Who's willing to bet against inertia (If iTunes rentals are available why should I bother learning the Neflix website/platform?) as the single biggest factor that will be responsible for iTunes movie rentals swamping Netflix in the next couple of years?

Blockbuster is dead. Netflix may keep their current subscribers but will have a very hard time attracting new ones. Oh yeah they'll roll out a box built by LG soon. LG, that exemplar of simple, user friendly user interfaces. Not!